If you have a complicated relationship with budgeting, the 50/30/20 rule could help. Rather than breaking down your monthly spending into dozens of tedious categories, this budgeting strategy takes a simpler approach.

The rule says you should spend about 50% of your after-tax income on needs, 30% on wants, and 20% on savings and debt repayment. But within those categories and budgetary constraints, you have total freedom.

How does the 50/30/20 budget rule work?

The 50/30/20 budget is a framework to keep your spending and savings on track with your income and goals. The rule suggests you direct 50% of your after-tax income toward needs, 30% toward wants, and 20% toward savings and debt.

Read more: How to save $10,000 in a year

While some budgeting styles involve detailed plans, the beauty of the 50/30/20 rule is in its simplicity. To start using this budget, all you have to do is estimate your spending targets for each category based on your post-tax income.

While these categories have no official definitions, below are some guidelines for what expenses fit into each.

Needs: 50%

Your needs are what you require to go about your life each day. You can think of them as the basic non-negotiables you’d have to have, even if your income suddenly dried up.

Needs typically include things like:

• Housing

• Utilities

• Childcare

• Transportation

• Groceries

• Minimum debt and loan payments

Wants: 30%

Wants are the “extras” — things you enjoy and love to have but could survive without. Wants may also include “upgrades” to your needs, like organic groceries or high-end clothes.

Your wants may include things like:

• Dining out

• Travel

• Entertainment

• Home furnishings and decor

• Gifts

• Memberships

• Streaming services

• Upgrades

Savings and debt: 20%

If you have debt, this category includes any extra payments you make on top of minimum payments. (Minimum payments count as needs because not paying them can have serious financial consequences.)

Paying down high-interest debt first can help you lower your debt burden sooner and have more money to throw toward savings — which comprise the rest of this category’s 20%.

Things you may include in this part of your budget include:

• Credit card debt

• Loans and lines of credit

• Emergency fund

• Down payment

• Wedding

Pros and cons of the 50/30/20 budget rule

The 50/30/20 budget rule may or may not be the right strategy for you. It depends on your personal preferences and your financial situation. Before adopting this budget rule, consider the following pros and cons:

Pros

• Simple and easy to use: The 50/30/20 budget is easy to implement because it’s so simple. Instead of agonizing over how much you should spend on every little purchase, you can set general guidelines that every purchase falls within. As long as you stick to your spending targets, you can spend freely within each of the three budget categories.

• Allows for flexibility: The 50/30/20 budget rule is a framework, not a mandate. If your needs take up 60% of your take-home pay, you can dial back on savings or wants. Alternatively, if your wants only take up 25% of your budget, you can bump up your savings.

• Incorporates balance: Some budgets can feel restrictive — like you need to allocate as much as possible toward savings and debt without acknowledging your needs and wants. But the 50/30/20 budget ensures you spend a good chunk of your income on needs and wants, making it a strategy you can stick to without feeling a sense of deprivation.

Cons

• Percentage guidelines don’t work for everyone: For some people, the 50/30/20 budget just isn’t realistic — especially with today’s rising cost of living. If, for example, debt alone takes up 20% of your budget and your needs far exceed 50%, you may need to take a different approach.

• Not a fast track to hitting savings goals: While a generous focus on wants makes this budgeting strategy more sustainable, eager savers may not reach their goals as quickly as they want. Other budget structures, such as the pay-yourself-first method, have a bigger emphasis on savings and debt payoff — and may be a better fit if saving is your biggest priority.

Lacks a lot of structure: While the 50/30/20 budget is great for those who like a simple framework, others may crave more structure. This budget still requires you to balance and prioritize purchases within your wants and savings buckets rather than sticking to a pre-assigned “limit” for individual categories.

Read more: How the 'loud budgeting' trend could help you save more money

How to get started with a 50/30/20 budget

To use the 50/30/20 budget rule, start by calculating your net income. This should include your take-home pay after taxes, but before any benefits and retirement contributions are taken out. Multiply your post-tax income by 0.50, 0.30, and 0.20 to estimate how much you should plan to spend on needs, wants, and savings and debt, respectively.

For example, say you bring home $6,000 a month after taxes. In this case, you’d have $3,000 for needs, $1,800 for wants, and $1,200 for savings and debt repayment.

Next, look at your current spending to see if you’re on track with these percentages. Don’t forget to include paycheck deductions such as insurance and retirement contributions in the correct categories. For example, if you contribute $500 each month toward your 401(k), you can include that as part of your savings and debt payoff category.

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Next, consider where you want to make changes. For example, if you’re spending 40% on wants and only 10% on savings, you may want to increase your savings contributions while cutting back on discretionary spending.

Finally, it’s OK to be flexible with these percentages. For example, if your needs take up 55% of your income, you can dial down wants, savings, or a combination of the two. And you can always readjust as your income and expenses change.

Read more: How to budget: Your complete guide to budgeting for 2024

Frequently asked questions (FAQs)

Is the 50/30/20 rule realistic?

The 50/30/20 rule may not be realistic for everyone, especially considering high inflation and the rising cost of living. For example, if you live in a high-cost-of-living area, it may be impossible to limit your needs to 50% of your pay. While the rule allows for some flexibility, it’s probably not realistic for those who spend most of their income on needs and debt repayment.

What is the alternative to the 50/30/20 rule?

There are several alternatives to the 50/30/20 rule. The envelope method, the zero-based budget, and the pay-yourself-first method are just a few examples of other budgeting strategies you can try.

Does 50/30/20 include 401(k) contributions?

When budgeting with the 50/30/20 rule, calculate your income after taxes are taken out but before any 401(k) or other retirement contributions are taken out. You’ll include any contributions to your 401(k) or other retirement accounts in your 20% savings category.